S&P: Dubai Real Estate Defies Correction Predictions, Market Stability Anticipated by 2026
October, 2024
The demand for residential properties in Dubai has surged significantly since 2022. Despite expectations of a market correction by the end of 2024, this has yet to materialize. According to a recent report by S&P Global, analysts had initially forecasted a price stabilization and demand decline due to the influx of new projects over the past two years.
Reidin’s “Q2 2024 Dubai and Abu Dhabi Real Estate Market Overview” highlights a rapid increase in new project launches in early 2024, surpassing those of 2023. Off-plan sales reached $34.3 billion in the first half of 2024, expected to exceed 2023’s total of $58.3 billion. Notably, S&P’s analysts point out that ongoing geopolitical tensions in the Middle East have yet to impact Dubai’s real estate market.
The analysis, led by experts across S&P Global’s Dubai and Mumbai offices, suggests that Dubai’s property prices are unlikely to see a downturn over the next 18 months, projecting stability until 2026.
Key Drivers of Market Performance
Dubai’s real estate market is buoyed by both local and international investor demand. As of late 2023, Dubai’s population had reached 3.7 million, a number expected to grow to 4 million by 2026, fueled by an influx of expats. Rising rental prices are encouraging more residents to buy rather than rent, while recent visa reforms, including the introduction of the Golden Visa, have enhanced stability and attracted affluent international investors. With rental yields outpacing many European markets, Dubai remains a competitive choice for investment. Off-plan transactions doubled in the first half of 2024 compared to completed properties, as buyers show a readiness to pay premium rates for new developments.
Resilient Economy
S&P analysts foresee sustained economic resilience in Dubai, predicting a GDP growth rate of around 3.0% from 2024 to 2027, following a 3.3% increase in 2023. Dubai’s Economic Agenda (D33) aims to attract more real estate investments, focusing on transparency and technological advancements to boost transaction volume by 70% and double the value of Dubai’s property portfolios by AED 20 billion. Furthermore, the Dubai 2033 Real Estate Strategy seeks to increase homeownership to 33% by 2033, contributing AED 73 billion to the GDP.
Outlook for 2025-2026
Dubai’s property prices are expected to remain stable over the next 18 months, with a potential decline due to increased supply in subsequent years. Approximately 182,000 new housing units are anticipated between 2025 and 2026, following a surge in pre-sales during 2022-2023. This expected supply volume greatly exceeds the annual average of 40,000 units delivered between 2019 and 2023, with market absorption relying on population growth and investor demand.
Off-Plan and Ready Unit Price Trends
S&P anticipates stable off-plan prices per square foot in 2025. Developers are likely to prioritize sales volumes over price growth, while prices of ready units could see slight increases due to supply availability and affordability relative to off-plan offerings. Rental growth is expected to stabilize first in non-core areas, possibly expanding to broader regions later on.
Luxury Real Estate Sector
The share of luxury real estate projects is expected to decline in 2025 as developers focus more on affordable and mid-priced properties. Despite higher profit margins in luxury projects, the high-end apartment market remains relatively small, and developers are adjusting portfolios to include more affordable villas and apartments.
Market Risks and Interest Rates
Regional geopolitical escalation poses the primary risk for Dubai’s real estate market over the next 12-18 months. While the UAE has historically been a safe haven for investors, the current geopolitical complexities could impact the market differently. Despite global inflationary pressures and elevated interest rates, Dubai’s residential market has largely been unaffected due to limited reliance on mortgages, which are mostly limited to ready units or post-handover off-plan sales.
Developer Performance
S&P projects stable credit ratings for key developers, driven by low leverage, strong cash flow, and healthy liquidity. Emaar, Damac, and Sobha Realty collectively account for 35%-40% of Dubai’s off-plan market. These developers are well-positioned for growth over the next two years due to robust off-plan sales in 2023-2024. Consequently, S&P has upgraded Damac and Sobha’s credit ratings to BB / Stable and reaffirmed Emaar’s rating at BBB / Stable, surpassing its pre-pandemic level of BBB- / Stable.
Sustaining the Off-Plan Sales Surge
While off-plan sales in 2024 are expected to exceed 2023’s peak, S&P analysts anticipate a potential slowdown in 2025-2026. The high cash flow from accelerated off-plan payment plans ensures developers have sufficient liquidity for ongoing projects. However, construction delays, often due to capacity constraints, may limit immediate unit availability, temporarily supporting price growth. Nonetheless, S&P expects the market to stabilize by 2026 at the latest.
